Moutai Profit Rises 13% as China Liquor Market Shows Resilience

(Bloomberg) — Liquor giant Kweichow Moutai Co.’s net income rose 13% in the first half of 2020 as the recovering local economy boosted demand for its ultra-premium line of baijiu, China’s national drink, the company reported.

Although growth has not yet returned to pre-pandemic levels, earnings for the first six months climbed to 22.6 billion yuan ($3.2 billion), the company said in a statement Tuesday to the Shanghai Stock Exchange. Revenue for the period jumped 11% to 45.6 billion yuan. For the comparable period last year, it reported a 26% rise in net income and a 17% increase in revenue.

Moutai has shown exceptional resilience in the past few years, making it an investor darling and China’s biggest stock. Demand for its fiery baijiu — scarce in supply and highly coveted by the Chinese elite — has survived a local economic slowdown, U.S.-China trade tensions and the coronavirus pandemic.

The baijiu maker recorded buoyant first-quarter earnings even though the spread of the virus in China during that period forced the government to impose strict social distancing measures including a lockdown in some places and a ban on all public gatherings.

Baijiu Bribes

There are signs, however, that the liquor maker may be facing pressure over its high prices. Moutai’s market valuation plunged a record $25 billion July 16 after the influential state-run People’s Daily criticized its price tag, saying the alcohol is often used in corruption cases.

The shares advanced almost 3% Tuesday to 1,670 yuan, bringing this year’s appreciation to 41%. It touched a record high of 1,781.99 yuan July 13.

The distiller, which makes baijiu out of sorghum and wheat, could experience a weakening of demand in the usually buoyant autumn months if Chinese consumers shun socializing amid resurgences of the coronavirus outbreak.

China’s new cases of infection this week were the most in more than four months as the country battles outbreaks in its northeastern and western regions.

Demand for ultra-premium baijiu is down as much as 40% from a year ago with very few banquets during the wedding season and the annual dragon boat festival, Bernstein said July 24 in a note, citing major distributors of Moutai and Wuliangye Yibin Co Ltd.

Before the pandemic, the Chinese alcohol giant gave guidance of about 10% growth for full-year sales for 2020, which would be its weakest growth in five years.